UOB Kay Hian analyst Jonathan Koh has maintained his “buy” call on Mapletree Pan Asia Commercial Trust (MPACT) with a lower target price of $2 from $2.07 previously following the announcement of the trust’s 1HFY2023 earnings result ended September.
In his Nov 1 report, Koh says that MPACT’s 1HFY2023 DPU of 4.94 cents — which represents a growth of 12.5% y-o-y — is in line with UOBKH’s expectations.
Both gross revenue and net property income (NPI) grew 44.9% y-o-y, driven by growth from VivoCity and Mapletree Business City (MBC) as well as the merger with Mapletree North Asia Commercial Trust (MNACT) which was completed on July 21. The merger resulted in MPACT doubling in size and becoming more geographically diversified, says Koh.
MPACT has also embarked on an 80,000 sq ft asset enhancement initiative (AEI) which includes converting part of TANGS’ Level 1 space into a 56,000 sq ft new retail zone, Koh points out. A majority of the space has already been pre-committed and the new zone is expected to progressively open by mid-2023. The AEI will cost $13 million and is expected to deliver a return on investment of more than 10% on a stabilised basis.
The REIT achieved positive rental reversions from Singapore, China and South Korea in 1HFY2023. Koh highlights that the office market in Singapore remains on an upward trajectory, supported by moderate economic growth and relatively limited supply.
“There is a large supply of business park space of 3.2 million sq ft during 2022-2024, but the fringe sub-market where MBC is located is not affected. Half of the new supply is purpose-built or caters to specialised industries,” says Koh.
He adds that MPACT has completed the electricity tender for its Singapore properties. The new supply contract for electricity kicks in starting November, increasing the cost of electricity by about 40%. Hence, the REIT will be affected by higher cost of electricity in 2HFY2023.
In China, leasing activities have resumed at Shanghai’s Zhangjiang Science City after the lift of the lockdown, with demand driven by biomedical, semiconductor and artificial intelligence industries. However, growth in rents is capped by an influx of new supply, says Koh, adding that Beijing suffered negative net absorption in 3QFY2022 due to downsizing by several prominent internet companies.
Although Festival Walk in Hong Kong benefitted from the easing of Covid-19-related restrictions and disbursement of government consumption vouchers, rental reversion remains negative at 11.5% in 1HFY2023. As Hong Kong has ended hotel quarantine starting Sept 26, the reopening of borders would catalyse further recovery, says Koh.
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UOBKH has trimmed its DPU forecast by 3% for FY2023 to 10.3 cents and 3.5% for FY2024 to 10.4 cents, to account for higher cost of debts.
As at 10.07am, units in MPACT are trading 1 cent lower or 0.63% down at $1.56.
